E-Cigarette Tax Hikes Threaten State Revenue, Public Health

A number of states over the past two years have attempted to impose new and higher taxes on e-cigarettes and vapor products. Though many legislative efforts have been thwarted, potential e-cigarette tax increases continue to pose a threat to state revenue, businesses, and public health.

States are scrambling to find new funding to replace the decline in tobacco tax revenue. Earlier this year the Surgeon General published a 980-page report predicting an eventual end to cigarette smoking in the United States. Whether those predictions come true or not, what’s clear is that as tobacco use declines, consumers are transitioning to healthier products like e-cigarettes. Higher excise taxes on these products will result in cross-border sales and even less revenue for states.

New and higher e-cigarette taxes are not serious public policy alternatives to declining tobacco revenue. The sale of these products is highly mobile due to the popularity of online sales. That’s precisely why state efforts to generate more revenue from these products are misguided. Massachusetts’s proposed 90% wholesale tax hike and Vermont’s proposed 92% would have crippled the industry and further harmed small businesses, like convenience stores, who are already suffering from a decline in tobacco related purchases had they become law.

For tobacco sales, tax evasion is a significant issue for states. The Washington Department of Revenue estimated $376 million in tax revenue was lost in 2012 due to tobacco tax evasion. A combination of tax evasion and higher online sales (not subjected to sales taxes) may become a growing issue for states if they impose higher in taxes on e-cigarettes and vapor products. States like Washington have taken note. The state Senate this year rightfully rejected a 95% tax on e-cigarettes and vapor products, preventing a further loss of revenue for convenience stores and brick and mortar vapor shops as a result of the fleeing of consumers across state lines.

Besides hurting taxpayers and diminishing state coffers, e-cigarette tax hikes also pose a threat to public health. Overtaxing products accredited to potentially saving lives makes little sense. In opposition to former New York Mayor Michael Bloomberg’s hypocrisy on public health for raising taxes on these products, ATR’s Patrick Gleason wrote:

Studies have shown that electronic cigarettes stand to improve health and prevent disease. By choosing to “vape” e-cigs instead of smoking cigarettes, consumers get their nicotine fix without the combustion and smoke — responsible for much of the negative health effects of tobacco cigarettes. For smokers already addicted to nicotine, e-cigs provide an alternative delivery mechanism that does not come with the proven harm that results from smoking.

Lawmakers like Bloomberg claim to champion public health and crusade against rising health care costs, yet they miss the irony of their contradictory legislation. While saying they seek to encourage smokers to successfully move away from tobacco products, their proposed higher taxes on e-cigarettes and vapor products are contributing to the high health care costs associated with a lifetime of smoking cigarettes. With e-cigarettes, neither tobacco nor second hand smoke poses a threat to anyone.

Despite the evidence staring them blankly in the face, there are still legislators and governors attempting to make money off of this growing industry. Democrats like Rep. Reuven Carlyle (D-WA) vow to revive failed attempts in future legislative sessions for tax hikes. ATR encourages Ohio, New Jersey, and legislators across the country to kill all bills aimed at increasing e-cigarette and vapor product taxes. These tax hikes will not result in new revenue, but instead declining economies.